Dance lessons…they’re almost a right of passage for little girls as they’re growing up. Some students become more serious and dedicate themselves to their chosen discipline through high school and into adulthood. And some may go on to make a career out of it as performers or even become teachers themselves.
Small business owners often face challenges because they start a business out of a love for what they do rather than because they want to run a business. Many aspects of owning a business can become a burden due to the time-consuming nature of what these duties entail, or because they are frustrating or require a level of expertise that owners don’t have because they are experts in other areas instead. This is super common, and I believe it’s the reason that many businesses fail.
As an accountant, I want to help that NOT happen to you!
I want to talk today about accounting for your dance studio. This is one of those things that can be difficult to wrap your head around; it’s just not everyone’s cup of tea, and that’s okay! We’ll cover the two major financial statements you should be familiar with and touch on a couple of your pain points in running your business. The focus I want you to keep coming back to is being more able to make sound financial decisions by using good, accurate data in your books.
The Dance Studio P&L
As a small business owner, the Income Statement will be your best friend. This single report will give you most of the information you need about the health of your business!
More commonly known as the P&L or Profit and Loss, the Income Statement itemizes all your income streams and your expenses and nets them against each other, giving you “the bottom line,” which is your net profit or loss. Let’s take a closer look at the info you can glean from this report.
Income Streams for Dance Companies
Dance instruction will be your bread and butter; however, you may have diversified your revenue streams a bit. You likely have a registration fee or annual fee that is due from your students (or their parents) once a year, and you may also sell merchandise like dance shoes and attire, studio T-shirts, bags, water bottles, and even general activewear.
You’ll want to divide this out this income in your dance studio’s Chart of Accounts within your accounting software. This will give you the most insight into your finances when you prepare your financial statements, like your P&L.
I suggest running a P&L once a month and looking it over to see how your income is doing and how it’s balancing out with your expenses. You’ll likely have a surge of income in the late summer with registration fees, then a steady monthly income from lesson fees and perhaps merchandise sales, then another surge in winter when it’s time to think more about spring recitals. If you do summer camps, you’ll have a nice surge over summer as well, which helps offset the “famine” represented by the off months for your traditional class year.
Here is a really basic sample of how you can set up your income accounts in QuickBooks Online:
- Registration fee income
- Lesson fee income
- Recital income
- Merchandise income
It’s pretty straightforward; however, you can add more sub-categories to give you additional information! This makes it so you can see everything on a detailed P&L rather than having to go hunting through your dance studio management software to see how much you’re bringing in for each class.
There is a fine line between having not enough information and having so much that your P&L spans multiple pages and makes it hard to read. The cool thing about using QuickBooks Online for your dance studio accounting is that you can run a summary report as well as a detailed one, so you don’t always have to use the long version if you don’t want. That said, ideally you’d keep it to one page if at all possible.
Here is an example that’s more along the lines of what I suggest to small business owners:
- Registration fee income
- Lesson fee income
- Ballet
- Beginner
- Intermediate
- Pointe
- Tap/jazz
- Beginner
- Intermediate
- Advanced
- Hip-hop
- Beginner
- Intermediate
- Advanced
- Other disciplines
- Lyrical
- Modern
- Ballroom
- Latin
- Summer camps
- Ballet
- Recital income
- Ticket sales
- Ad sales
- Merchandise income
- Dancewear
- Dance shoes
- Activewear
- Bags
- Water bottles
Whatever your hierarchy of classes and products, you can itemize it out in your software to whatever level of detail you desire.
Additionally, this can give you a much more accurate accounting for your merchandise sales. You can set this up to sync with your POS system and bring in the entries daily when the system closes. This is done by mapping the POS system to correspond with the accounts in QuickBooks so it will handle your sales, your inventory, COGS (cost of goods sold), and sales tax payable in one fell swoop. This sounds more complicated than it is, but once it’s set up, you won’t need to fuss with it too much if the systems can be synced with one another.
Dance Studio Expenses
Expenses commonly occurred for dance studios include:
- Rent
- Advertising
- Printing
- Wages
- Dance teachers
- Admin staff
- Costumes (even if this is just passed through to the vendor, it is still income to your business if the families are paying you)
- Theatre rental
- Office supplies
- Utilities
- Insurance
- Repairs and maintenance
- Professional fees
You could divide this up even more if you so desire. For example, you could add sub-categories for the different costumes needed by the various classes. Professional fees can be divided into legal fees and accounting fees. Utilities could be broken down into the various companies you have to pay for electric, gas, water, etc. Whatever specifics you want to see as an owner is how we need to get it set up.
I have to also mention that COGS should come straight off the top for your merch sales before the rest of the operating expenses. This involves subtracting the cost of what you purchased from the price you sold it for. This gives your gross profit for the merch. You can then see what your margins are on each product and calculate a better mark-up if need be.
Here is how that looks:
Price charged to customer (income) – cost you paid to the vendor (COGS) = Gross profit for that item
Example: $10 price – $4 COGS = $6 gross profit
To figure your margins, it is simply expressed as a percentage:
(Gross profit / price) x 100 = Gross margin %
Example: ($6 gross profit / $10 price) x 100 = 60% gross margin
Is this enough of a profit margin, knowing you still have labor and operating expenses to subtract? Only you can answer that, but this is one piece of the puzzle to help you maximize your bottom line.
Pass-through Expenses for Dance Companies
Some of your expenses are passed on to parents (or students, if you serve adults). In that case, you want to have an income account for these fees and a matching expense account. For example, you’d have an income account called Costume Fee Income and an expense account called Costume Expense.
When you do it this way, any small loss or gain on these pass-through expenses will net out and be an income or loss to the dance company, rather than trying to match everything up exactly and figure out if you have extra left over (or not) before booking it in your accounting software.
In addition, this could actually be a legitimate source of revenue for your business. There’s nothing wrong with adding extra fees for your time and the burden of sourcing the costumes in order to get some revenue out of it. This is especially true when you’re devoting paid labor to this purpose – you need to make sure those costs are covered!
In reality, this is almost like a COGS situation wherein you are purchasing something to resell, but it’s a little different and I personally like to see it handled differently from your standard product sales. Again, this is something you’ll have to consider as a business owner and how you want it to appear when you’re running your numbers.
The Dance Company Balance Sheet
A conversation about accounting would not be complete without touching on the Balance Sheet. This report represents a snapshot in time and shows your assets (cash, cash equivalents, and the things you use to make your income) and your liabilities (any money owed to people, usually for the purchase of assets). These two net to show your equity as an owner.
Assets Used in Your Dance Studio
Assets for a dance studio might be the studio space itself, and you likely would also have a mortgage liability, too. But if you don’t own the building, you may not have tons of assets. The average dance studio might have some inventory; you will have some equipment and certainly some leasehold improvements – the way you built out the inside of the studio to make it what it is. These are depreciated over time rather than expensed at purchase. Said another way, you are still getting an expense out of the deal, but it is called a “non-cash expense” in that you take it a little at a time rather than when the cash is actually laid out.
If you have accounts receivable, that is also an asset. Note that A/R is only considered such when the service has already been performed. When someone signs up for a class that lasts most of the year, you do have a promise to pay from the students/parents, but usually those services are not rendered before payment becomes due, and so this does not represent A/R, even if you are expecting to be paid. For full transparency, you’ll need to examine your contracts to make a final determination on this. If a student does not give adequate notice before withdrawing from a class, they may still owe for that month even if they will not be receiving services. That may become an A/R situation if they do not pay.
Common Dance Studio Liabilities
Common liabilities for dance companies include any accounts payable for items purchased on vendor credit and credit cards that were used. The biggest liabilities, aside from a mortgage, would be payroll-related, and maybe sales tax on product sales, but these are just temporary. When your teachers do their work, you owe them for that work, so this becomes a liability for the week or two between the work and the paycheck. Same applies for payroll taxes and sales tax that must be remitted – these are temporary liabilities, but I’d be remiss if I did not include that here.
If your teachers are independent contractors as opposed to employees, you wouldn’t have the payroll tax liability, just the liability represented by the work they have performed that is yet unpaid. Be sure to get a W-9 at the outset when you work with a new teacher who is an independent contractor. Inside QuickBooks, you can set them up as a vendor and track their payments for 1099, making things much simpler at tax time! Preferably, they will issue you an invoice periodically for the work performed, and that invoice would represent A/P rather than a payroll liability. This is really beyond the scope of this article, but if you decide to outsource your accounting, this is the exact type of thing that I can assist you with.
Invoicing Your Dance Students
You have multiple options for collecting payment from your students or their parents. You can always collect cash or check, but credit card or ACH payments are much more common, especially since it doesn’t involve a trip to the bank! The best thing about this is that you can set these up to automatically process on a specific date. I always suggest that payments be processed BEFORE services are rendered, and that it’s done automatically so parents are not “forgetting” to pay, or asking for an extension when money is tight. It also eliminates a lot of the work for you, both in reducing the time spent each month on invoicing as well as chasing after those who don’t pay.
QuickBooks Online has a way to create and email invoices as well as set up recurring drafts. Melio (affiliate link) is a popular bill pay software that syncs with QuickBooks and can also do this, and the fees are lower (or free in some cases). ACH drafts are always going to be cheaper than credit card payments, too, usually along the lines of 1% versus the almost 3% for processing a card payment.
One last note is that if you do want to offer payment extensions to students sometimes, you should come up with a policy about it and stick with it. Extending credit in this way can present a cash flow problem, so be judicious in your use of this option and certainly add a fee for late or missed payments.
Outsourced Bookkeeping and Payroll for Dance Studios
As a small business owner, you have many things on your plate. If dealing with your accounting is something you want to take off that plate, let’s see how I can help you. You can free up time by handing this off and focusing on the things you do best, like teaching your students, marketing your next performance, or training great teachers.
The first step is utilizing my new pricing calculator tool to get a roundabout estimate of what the services will cost. Then, schedule a quick call so I can answer any questions. I can take this over for you in less than a week!